Examining Today's Industrial Market

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Published In October 2001

For most of the 1990s, electrical contractors’ sales in the industrial market held steady at 21 percent of total sales, according to Electrical Contractor magazine’s 2001 Guide to the Electrical Contracting Market.
Between 1997 and 1999, industrial project sales increased to 26 percent. How long can the boom of the last few years of the 20th century be expected to continue before the industrial market starts spiraling downwards?
Defining the market
Many contractors define industrial work as an electrical installation in any manufacturing, process, or production facility. “Most of our customers are pulp and paper manufacturers, power generation plants, pipeline compressor and pump stations, petrochemical plants, food and beverage processing facilities, mining operations, or chemical processing plants,” said Wayne Gardner, vice president and chief engineer at MJ Electric, Inc., Iron Mountain, Mich. Exelon Infrastructure Services, Morton, Pa., recently purchased this company.
Regardless of the facility involved, industrial work is definitely highly specialized and requires a certain expertise in programmable controls, logic systems, and control circuits. “Industrial facilities are high-power consumers and typically require high-voltage systems with redundancy power supplies to support and protect the power demands of the facility,” said Bob Bower, executive vice president at Rosendin Electric, Inc., San Jose, Calif.
Henderson Electric Co., Inc., headquartered in Louisville, Ky., and part of Bracknell Industrial, takes a very broad approach to industrial work, defining it as non-commercial projects that include manufacturing, process, and material handling and packaging facilities, sewage or water treatment plants, utility projects, or power generation plants.
Sachs Electric Co., St. Louis Mo., also paints the industrial market with a broad brush, except for the automotive segment. “We have formed a separate division to handle just these types of projects,” said Larry Walker, executive vice president. In the automotive world, a certain “initiation” period is required. “The universe of contractors and vendors is so small that a contractor must prove it can perform the work before automotive industry customers will return to it repeatedly,” he added.
On the rise?
“In today’s slowing economy, the process industry, such as pulp and paper, chemical processing, and mining operations, has been declining over the past year,” Gardner said. MJ Electric, therefore, has refocused its efforts on the growing merchant generation plant and natural gas pipeline segments of the market as deregulated independent power producers (IPP) build power facilities across the country to fulfill consumer demand for more energy.
“Opportunities for electrical contractors exist in the power generation industry as new plants are built to meet demand and other plants are upgraded to make them more efficient,” said Bruce Henderson, president of Henderson Electric. Environmental Protection Agency (EPA) clean air and water regulations that have impending implementation deadlines also present opportunities for increased sales. “However,” he added, “Some segments, such as the automotive industry, are currently on a manufacturing decline.”
Alameda County, Calif., has historically been known as a manufacturing corridor, but recently the area has seen more high-tech and commercial sector work being developed. “Some, however, may argue that large high-tech facilities could be considered large manufacturing operations, and therefore considered industrial work,” Bower said. Given the current energy dilemma affecting northern California, it’s unlikely, according to Bower, that there will be any new large manufacturing facilities built in the near future. “We do, however, see a bit of sustaining and renovation work for various manufacturers and process facilities in the area,” he added.
“Industrial work has slowed slightly from the highs of 2000,” said Dick Martin, vice president of Motor City Electric Co., Detroit, Mich. He attributed the slowdown to the sluggish economy and said that, even though the large auto makers are still spending money for projects, they are spending less than they have been in recent years.
A different world
Although there are some parallels to the high-tech sector, industrial facilities are dramatically different in the work performed in them and in their environments. “The systems associated with industrial work can be considered very complex as they typically interface with conveyors, heavy machinery, assembly lines, and robotics,” Bower explained.
“Industrial projects are usually quite large, complex, and fast track,” Gardner said. Some industrial projects, such as paper machine rebuilds, are performed while a portion of the facility is shut down. To complete the project as quickly as possible and bring the plant back on-line, substantial amounts of coordination between all contractors on the job are required.
Henderson also stressed the fast-track nature of industrial work. “A lot of our industrial projects are very time-driven,” he said. In addition, he added, an electrical contractor that performs work in the industrial sector must have a great deal of management skill and technical capabilities. The customer must trust in the contractor’s ability to help it get its products to market more quickly, with as little downtime of equipment and machinery as possible.
Safety is another aspect of industrial work that is different from other segments. “Of course safety is important in all sectors of electrical construction, but industrial customers use a contractor’s safety management record as one of the most important criterion in pre-qualifying the company,” Henderson said. Electrical contractors who have a large safety staff with full-time safety directors, who closely manage job-site safety and enforce both government regulations and customer requirements, are more likely to be pre-qualified.
“In larger industrial facilities, there are more safety and chemical hazards to consider,” Walker said. Industrial customers, therefore, examine the electrical contractor’s safety record very carefully, and the companies that can demonstrate an abiding commitment to safety are the ones that usually succeed in the industrial market.
Breaking into the market
To successfully break into the industrial market, companies must be technologically current and have state-of-the-art training programs in industrial controls and systems. “It is essential to be capable of supporting a turnkey design/build high-voltage installation with all of the associated distribution systems,” Bower added.
The importance of pre-qualification in the industrial market cannot be overstated. Electrical contractors must demonstrate that they are as able or more capable of providing the services and safety management processes that already established industrial contractors in the area have.
“A new contractor to the market must have a proven track record and a portfolio of successful projects that demonstrates the ability to perform industrial work safely, efficiently, and cost-effectively,” Henderson said. Other criteria for successfully breaking into the market include references and the ability to provide qualified levels of manpower in a short period of time. “The essence of the industrial market is time, safety, and manpower.”
Having the specialized tools and materials to execute industrial work requires a larger investment as compared to commercial projects. “For instance, most industrial sites require galvanized rigid steel (GRS). Cutting, threading, and bending GRS is an expensive tooling endeavor, especially in larger conduit sizes,” Walker said.
Electrical contractors who are either already working in the industrial market or have managed to break into it must also stay current on the latest process and control technologies. “As with any market segment, the electrical contractor who possesses the latest skills and who can install the latest systems is in a better position to help customers improve their own operations and profitability,” Gardner said.
Another reason the industrial electrical contractor needs to stay current on changing technology is that customer’s plan specifications are usually conceptual. “The contractor must have qualified engineers that understand industrial systems to actually design, layout, and formulate a construction schedule for the project,” Henderson said. It is not unusual, he added, to see electricians and engineers in the field using laptops to re-design the project even as work is underway.
All this takes financial resources and the ability to make capital investments in people, training, and equipment. Industrial contractors must be able to invest in the specialized tools and heavy rigging, pipe bending, and cable-pulling equipment required by the electricians in the field. Gardner also emphasized the need to invest in safety training. “Excellent safety records are extremely important to industrial customers and contractors,” he said. Not only to reduce liability, and therefore insurance costs, but because of the potential safety hazards unique to processing and manufacturing facilities.
Once the contractor has the resources to buy or lease the tools and equipment that are unique to the industrial market, he or she must then demonstrate the ability to meet schedules and achieve the customer’s production goals. That takes an investment in personnel and the resources to quickly staff a project. “With so much at stake, the customer is going to choose the electrical contractor that has proven itself in similar situations,” Walker said.
Tips for success
To succeed in the industrial market, an electrical contractor has to form strong relationships with the general contractors, vendors, and engineering firms that specialize in the market. “Industrial customers view a team of GC, engineer, and mechanical and electrical contractor as an added value to the success of the project and a crucial element to creating a long-term relationship for future work,” Gardner said.
Bower advised to first make the necessary investments in people and then build a business plan that centers on providing total customer satisfaction. “Build a solid infrastructure with a strong management team and reliable equipment,” he said.
According to Henderson, having excellent field supervision is critical to succeeding in the industrial market. “It all boils down to having experienced, qualified people that can fulfill the time and safety requirements of the customer base,” he said.
The successful electrical contractor must be willing to invest in developing staff management skills, in technology, and in building relationships with financial partners.
“Don’t try to save money in tools and materials,” Walker said. It is through providing the electricians on the job site with the necessary tools and equipment that the contractor can live up to the commitments made to the customer. In addition, Walker advised, understand the needs of the customer and show genuine concern for their production requirements. “Electrical contractors that show concern only for their own bottom line will not be perceived by the industrial customer as a true partner and will not experience the repeat business that is so crucial for succeeding in this market.”
Motor City Electric believes that the main ingredient for succeeding in this market is service. “As contractors, service is what we sell,” said Martin. When the company completes a project on time, at a reasonable cost, the customer remembers and it results in repeat business.
Future predictions
The industrial market is expected by most to rebound along with the economy. “If, as predicted by the experts, the economy begins recovering in the fourth quarter of 2001, opportunities for electrical contractors will increase accordingly as manufacturers and process concerns begin borrowing again to improve and upgrade their facilities,” Gardner said.
In addition, Gardner believes the energy industry and the construction of power generation plants industrial market will drive the industrial market for at least the next five years. A close eye should be kept on nuclear power as well, as that is predicted to be the next power generation segment to develop. “Nuclear power will provide new opportunities for contractors as well as unique challenges to learn a new state-of-the-art technology,” he said.
Others share similar optimism for the industrial market. “Large manufacturing and process facilities are very stable and will continue to operate. Renovation and sustaining work at these plants will be consistent for years to come,” Bower predicted.
Generally speaking, according to Walker, electrical contractors’ opportunities in the industrial market will continue to increase as changing technologies drive customers to improve their processes. Henderson agreed. “Manufacturers and processors are constantly searching for ways to improve their operation and profitability and are willing to invest in the electrical and electronic technological upgrades that will help them reach their goals.”
Martin predicted that today’s global economy would improve the U.S. industrial market. For example, because of worldwide competition in the automotive business, it has become necessary for companies to constantly keep changing body styles and add new product lines to differentiate themselves. “This will continue to create a flow of business for electrical contractors in installing systems in both existing and new facilities,” he concluded.
BREMER, a freelance writer based in Solomons, Md., contributes frequently to Electrical Contractor. She can be reached at (410) 394-6966 or by e-mail at dbremer@erols.com.

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